New Capital Asset Management: Just Like Burning Money

by Terrence O'Hanlon, Publisher and CEO Reliabilityweb.com and Uptime Magazine 

I just finished re-reading Operational Readiness: Bridging the Gap Between Construction and Operations for New Capital Assets by Bob DiStefano with Co-Authors Will Goetz and Bruno Storino in the June/July 2012 issue of Uptime^® Magazine.

They use the term Value Leakage as a euphemism for the way companies wastefully burn money during capital projects.

This article is one the best I have read on the subject however I must disclose that I am the CEO and Publisher of Uptime Magazine and a friend of Bob DiStefano, but I stand by my statement in spite if my obvious bias.

The authors point out huge short-term consequences of company/management decisions and actions by the capital construction team on operations and maintenance (you can do the math to multiply the long term impacts).

Examples of some of the reason so much “value” is leaked include:

• The new plant has been “tossed over the fence” to the operations and maintenance organizations from the capital construction people.
• The operations and maintenance people were not given the opportunity to contribute to the design or equipment selections.
• The plant is being commissioned later than scheduled because of construction delays, and now the company is pressuring operations to make up the lost time.
• The project came in over budget and at the end of the construction phase, options to facilitate maintenance and reliability (e.g., instrument packages) were sacrificed in favor of saved time and cost.
• Voluminous operations and maintenance documentation is delivered coincident with commissioning in the disparate formats that the engineering and procurement contractor firm, construction contractors and equipment suppliers elected to use (usually inconsistent and not readily transferable into the enterprise asset management (EAM) system).
• Some of the equipment selections were based on the value of lowest initial cost and not on the basis of total lifecycle cost or reliability/maintainability.
• No consideration was given to make and model of already installed assets, resulting in no standardization, a need for overstocking of spare parts, and a requirement for operations and maintenance to become familiar with every brand and model under the sun.
• Abundant spare parts have been procured and delivered, usually at great capital cost, in anticipation of the frequent equipment failures that likely will occur given the operations and maintenance organizations’ unfamiliarity and lack of experience with the new equipment.
• The EAM system has not been loaded with asset and spare parts master data or maintenance procedures representing the new assets.
• Original equipment manufacturer (OEM) maintenance recommendations are contained only in the OEM hardcopy manuals and are largely time-based preventive maintenance with heavy reliance on parts replacements and little use of predictive maintenance or condition-monitoring technologies.
• Little was done to perform acceptance testing (e.g., predictive maintenance baselines) and ensure proper installation and readiness for mission prior to releasing the contractor(s), leaving the operations and maintenance organizations to fix the mistakes of the contractor(s).
• The first year of operations is very stressful, with significant unexpected downtime due to the operators and maintainers trying to learn the new plant on the fly, not having had time to prepare, train and be ready for the operations phase.

Do any of those sound familiar to you?

The authors state that list can go on and on, but the point is hopefully made.

There is currently a lot of noise about what role maintenance reliability leaders play in asset management with European and Australian organizations doing their best to avoid having the M word (maintenance) associated with Asset Management.  The fact is that in almost every “Asset Management” case study with significant financial results, M not only means Money it means Maintenance.

There are huge opportunities awaiting maintenance reliability leaders who push their way into playing a more important role in project life cycle decisions.  Career making opportunities.

I urge you to read this well written and relevant article if you are an Uptime Magazine subscriber.  If not, it is also published online at Reliabilityweb.com here.  Please leave your comments online as well as I am sure the authors would value any feedback you can share.

A special thank you to Bob DiStefano and the entire MRG team for sharing their knowledge and experience with Uptime Magazine and Reliabilityweb.com readers.

Operational Readiness: Bridging the Gap Between Construction and Operations for New Capital Assets

Operational Readiness: Bridging the Gap Between Construction and Operations for New Capital Assets


It traditionally has been the case that significant leakage of anticipated project value occurs during the turn-over/commissioning and ramp-up periods of the new asset lifecycle. 


Case studies have measured this leakage to be as much as 30% of the value that was anticipated during the early stages of the total lifecycle.


The early stages consume the first three to five years and include the engineering, design, construction, commissioning and ramp-up phases. The ramp-up phase is usually the first year after commissioning-often a painful period of unstable operations, with significant lost revenue and profit opportunities due to unexpected and extended downtime. 


Of equal and often greater significance, the actual operations and maintenance costs (O&M) of the assets during the longest portion of the total asset lifecycle-the operate/maintain stage (often 30 years or more)-typically are 1% to 2% higher (conservatively speaking) than the expected total lifecycle costs assumed in the initial business case-and this does not include the operability value destroyed because of poor design choices, unprepared operators and maintainers, antiquated maintenance strategies and a lack of necessary documentation. 


Choices made during the early design and construction phases set in place the long-term operating performance, as well as the long-term operations and maintenance costs for the more than 30-year life of the asset. 


Poor choices can doom the organization into incurring unnecessary lifecycle costs, reaching into the hundreds of millions of dollars for some large projects.


Read more at   
http://reliabilityweb.com/index.php/articles/bridging_the_gap_between_construction_and_operations/